SunEdison targets overseas with First Wind buy

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Richard Heap
November 21, 2014
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SunEdison targets overseas with First Wind buy

This week a renewable energy giant was born.

US solar developer SunEdison and its yieldco TerraForm Powerannounced an agreement on Monday to buy US wind firm First Wind for $2.4bn. The deal is due to complete in early 2015 and
would create the world’s largest renewable energy developer.

The deal involves an upfront payment of $1.9bn, and a further $510m to follow later on. Now, to some the timing might look odd. Surely it’s crazy to buy into a wind developer when US wind is facing huge uncertainty over subsidies post-2016, right?

Wrong. There are reasons why this makes sense — although it also highlights the dangers of the US yieldcos. More on that later.

But positives first. This deal means SunEdison can scale back its reliance on US solar, which is facing its own regulatory difficulties. The solar investment tax credit, which reimburses 30% of the development cost for solar projects, has driven an installation boom but is due to drop to 10% at the end of 2016.

This will cause problems for many established players. SunEdison says it won’t be unduly affected by the change, with chief executive Ahmad Chatila vowing to plough on through the ITC problems and build far more solar in 2017 than it is planning in 2016. But the First Wind deal diversification must also help.

Again, it may look strange that one company facing regulatory uncertainty in its own sector is spending $2.4bn for a company facing regulatory uncertainty in another. Doesn’t this deal mean SunEdison is doubly exposed to uncertainty in US renewables?

No, it doesn’t. This isn’t just about the US. SunEdison sees First Wind as a way to help it make its presence felt overseas. It wants to use First Wind as a platform to help it push into international markets as a developer of both wind and solar projects.

The solar giant is targeting expansion in markets including China, Europe, India and Latin America; and it feels that bringing in First Wind's experience in wind will extend its offer. That added diversity should give SunEdison a more compelling offer overseas.

That's the main thrust, but there's one other party to consider here: TerraForm Power, the yieldco that SunEdison launched in June.

US yieldcos rely on acquiring new projects to fuel their growth, and the First Wind acquisition will undoubtedly be good for Terraform as it adds an extra 521MW of projects to the Terraform portfolio. It is also good for First Wind as it is a guaranteed buyer for its projects.

And yet, we can’t shake the nagging feeling that it again highlights the inherent instability of the US yieldco structure.

To fuel growth they need to keep buying projects — and, as they need to keep making acquisitions to chase that growth, the result will be that at some point they end up paying too much for assets, or become over-exposed to wind farms that perform averagely.

We aren't saying that is the case with the First Wind projects, but it does again highlight our concern with US yieldcos. It is one aspect of the deal that won't be much talked about.

This week a renewable energy giant was born.

US solar developer SunEdison and its yieldco TerraForm Powerannounced an agreement on Monday to buy US wind firm First Wind for $2.4bn. The deal is due to complete in early 2015 and
would create the world’s largest renewable energy developer.

The deal involves an upfront payment of $1.9bn, and a further $510m to follow later on. Now, to some the timing might look odd. Surely it’s crazy to buy into a wind developer when US wind is facing huge uncertainty over subsidies post-2016, right?

Wrong. There are reasons why this makes sense — although it also highlights the dangers of the US yieldcos. More on that later.

But positives first. This deal means SunEdison can scale back its reliance on US solar, which is facing its own regulatory difficulties. The solar investment tax credit, which reimburses 30% of the development cost for solar projects, has driven an installation boom but is due to drop to 10% at the end of 2016.

This will cause problems for many established players. SunEdison says it won’t be unduly affected by the change, with chief executive Ahmad Chatila vowing to plough on through the ITC problems and build far more solar in 2017 than it is planning in 2016. But the First Wind deal diversification must also help.

Again, it may look strange that one company facing regulatory uncertainty in its own sector is spending $2.4bn for a company facing regulatory uncertainty in another. Doesn’t this deal mean SunEdison is doubly exposed to uncertainty in US renewables?

No, it doesn’t. This isn’t just about the US. SunEdison sees First Wind as a way to help it make its presence felt overseas. It wants to use First Wind as a platform to help it push into international markets as a developer of both wind and solar projects.

The solar giant is targeting expansion in markets including China, Europe, India and Latin America; and it feels that bringing in First Wind's experience in wind will extend its offer. That added diversity should give SunEdison a more compelling offer overseas.

That's the main thrust, but there's one other party to consider here: TerraForm Power, the yieldco that SunEdison launched in June.

US yieldcos rely on acquiring new projects to fuel their growth, and the First Wind acquisition will undoubtedly be good for Terraform as it adds an extra 521MW of projects to the Terraform portfolio. It is also good for First Wind as it is a guaranteed buyer for its projects.

And yet, we can’t shake the nagging feeling that it again highlights the inherent instability of the US yieldco structure.

To fuel growth they need to keep buying projects — and, as they need to keep making acquisitions to chase that growth, the result will be that at some point they end up paying too much for assets, or become over-exposed to wind farms that perform averagely.

We aren't saying that is the case with the First Wind projects, but it does again highlight our concern with US yieldcos. It is one aspect of the deal that won't be much talked about.

This week a renewable energy giant was born.

US solar developer SunEdison and its yieldco TerraForm Powerannounced an agreement on Monday to buy US wind firm First Wind for $2.4bn. The deal is due to complete in early 2015 and
would create the world’s largest renewable energy developer.

The deal involves an upfront payment of $1.9bn, and a further $510m to follow later on. Now, to some the timing might look odd. Surely it’s crazy to buy into a wind developer when US wind is facing huge uncertainty over subsidies post-2016, right?

Wrong. There are reasons why this makes sense — although it also highlights the dangers of the US yieldcos. More on that later.

But positives first. This deal means SunEdison can scale back its reliance on US solar, which is facing its own regulatory difficulties. The solar investment tax credit, which reimburses 30% of the development cost for solar projects, has driven an installation boom but is due to drop to 10% at the end of 2016.

This will cause problems for many established players. SunEdison says it won’t be unduly affected by the change, with chief executive Ahmad Chatila vowing to plough on through the ITC problems and build far more solar in 2017 than it is planning in 2016. But the First Wind deal diversification must also help.

Again, it may look strange that one company facing regulatory uncertainty in its own sector is spending $2.4bn for a company facing regulatory uncertainty in another. Doesn’t this deal mean SunEdison is doubly exposed to uncertainty in US renewables?

No, it doesn’t. This isn’t just about the US. SunEdison sees First Wind as a way to help it make its presence felt overseas. It wants to use First Wind as a platform to help it push into international markets as a developer of both wind and solar projects.

The solar giant is targeting expansion in markets including China, Europe, India and Latin America; and it feels that bringing in First Wind's experience in wind will extend its offer. That added diversity should give SunEdison a more compelling offer overseas.

That's the main thrust, but there's one other party to consider here: TerraForm Power, the yieldco that SunEdison launched in June.

US yieldcos rely on acquiring new projects to fuel their growth, and the First Wind acquisition will undoubtedly be good for Terraform as it adds an extra 521MW of projects to the Terraform portfolio. It is also good for First Wind as it is a guaranteed buyer for its projects.

And yet, we can’t shake the nagging feeling that it again highlights the inherent instability of the US yieldco structure.

To fuel growth they need to keep buying projects — and, as they need to keep making acquisitions to chase that growth, the result will be that at some point they end up paying too much for assets, or become over-exposed to wind farms that perform averagely.

We aren't saying that is the case with the First Wind projects, but it does again highlight our concern with US yieldcos. It is one aspect of the deal that won't be much talked about.

This week a renewable energy giant was born.

US solar developer SunEdison and its yieldco TerraForm Powerannounced an agreement on Monday to buy US wind firm First Wind for $2.4bn. The deal is due to complete in early 2015 and
would create the world’s largest renewable energy developer.

The deal involves an upfront payment of $1.9bn, and a further $510m to follow later on. Now, to some the timing might look odd. Surely it’s crazy to buy into a wind developer when US wind is facing huge uncertainty over subsidies post-2016, right?

Wrong. There are reasons why this makes sense — although it also highlights the dangers of the US yieldcos. More on that later.

But positives first. This deal means SunEdison can scale back its reliance on US solar, which is facing its own regulatory difficulties. The solar investment tax credit, which reimburses 30% of the development cost for solar projects, has driven an installation boom but is due to drop to 10% at the end of 2016.

This will cause problems for many established players. SunEdison says it won’t be unduly affected by the change, with chief executive Ahmad Chatila vowing to plough on through the ITC problems and build far more solar in 2017 than it is planning in 2016. But the First Wind deal diversification must also help.

Again, it may look strange that one company facing regulatory uncertainty in its own sector is spending $2.4bn for a company facing regulatory uncertainty in another. Doesn’t this deal mean SunEdison is doubly exposed to uncertainty in US renewables?

No, it doesn’t. This isn’t just about the US. SunEdison sees First Wind as a way to help it make its presence felt overseas. It wants to use First Wind as a platform to help it push into international markets as a developer of both wind and solar projects.

The solar giant is targeting expansion in markets including China, Europe, India and Latin America; and it feels that bringing in First Wind's experience in wind will extend its offer. That added diversity should give SunEdison a more compelling offer overseas.

That's the main thrust, but there's one other party to consider here: TerraForm Power, the yieldco that SunEdison launched in June.

US yieldcos rely on acquiring new projects to fuel their growth, and the First Wind acquisition will undoubtedly be good for Terraform as it adds an extra 521MW of projects to the Terraform portfolio. It is also good for First Wind as it is a guaranteed buyer for its projects.

And yet, we can’t shake the nagging feeling that it again highlights the inherent instability of the US yieldco structure.

To fuel growth they need to keep buying projects — and, as they need to keep making acquisitions to chase that growth, the result will be that at some point they end up paying too much for assets, or become over-exposed to wind farms that perform averagely.

We aren't saying that is the case with the First Wind projects, but it does again highlight our concern with US yieldcos. It is one aspect of the deal that won't be much talked about.

This week a renewable energy giant was born.

US solar developer SunEdison and its yieldco TerraForm Powerannounced an agreement on Monday to buy US wind firm First Wind for $2.4bn. The deal is due to complete in early 2015 and
would create the world’s largest renewable energy developer.

The deal involves an upfront payment of $1.9bn, and a further $510m to follow later on. Now, to some the timing might look odd. Surely it’s crazy to buy into a wind developer when US wind is facing huge uncertainty over subsidies post-2016, right?

Wrong. There are reasons why this makes sense — although it also highlights the dangers of the US yieldcos. More on that later.

But positives first. This deal means SunEdison can scale back its reliance on US solar, which is facing its own regulatory difficulties. The solar investment tax credit, which reimburses 30% of the development cost for solar projects, has driven an installation boom but is due to drop to 10% at the end of 2016.

This will cause problems for many established players. SunEdison says it won’t be unduly affected by the change, with chief executive Ahmad Chatila vowing to plough on through the ITC problems and build far more solar in 2017 than it is planning in 2016. But the First Wind deal diversification must also help.

Again, it may look strange that one company facing regulatory uncertainty in its own sector is spending $2.4bn for a company facing regulatory uncertainty in another. Doesn’t this deal mean SunEdison is doubly exposed to uncertainty in US renewables?

No, it doesn’t. This isn’t just about the US. SunEdison sees First Wind as a way to help it make its presence felt overseas. It wants to use First Wind as a platform to help it push into international markets as a developer of both wind and solar projects.

The solar giant is targeting expansion in markets including China, Europe, India and Latin America; and it feels that bringing in First Wind's experience in wind will extend its offer. That added diversity should give SunEdison a more compelling offer overseas.

That's the main thrust, but there's one other party to consider here: TerraForm Power, the yieldco that SunEdison launched in June.

US yieldcos rely on acquiring new projects to fuel their growth, and the First Wind acquisition will undoubtedly be good for Terraform as it adds an extra 521MW of projects to the Terraform portfolio. It is also good for First Wind as it is a guaranteed buyer for its projects.

And yet, we can’t shake the nagging feeling that it again highlights the inherent instability of the US yieldco structure.

To fuel growth they need to keep buying projects — and, as they need to keep making acquisitions to chase that growth, the result will be that at some point they end up paying too much for assets, or become over-exposed to wind farms that perform averagely.

We aren't saying that is the case with the First Wind projects, but it does again highlight our concern with US yieldcos. It is one aspect of the deal that won't be much talked about.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.